FLORENCIO ORENDAIN, PETITIONER, VS. BF HOMES, INC., RESPONDENT.

Orendain versus BF Homes

The Case

This is a petition for review on certiorari brought by Florencio Orendain against BF Homes, Incorporated, arising from a complaint for reconveyance of a parcel of land that BF Homes had sold through Orendain while the corporation was under rehabilitation receivership. The central question is one of jurisdiction: whether the action for reconveyance belongs to the Regional Trial Court as an ordinary civil suit, or to the Securities and Exchange Commission as a matter arising from receivership and intra-corporate relations. The case matters because it draws the boundary between the regular courts and the SEC, and because it teaches how jurisdiction is tested — by the allegations of the complaint, not by the defenses raised.

Procedural History

BF Homes filed a complaint for reconveyance before the Regional Trial Court of Las Piñas against the Franciscan Sisters of the Immaculate Philippines, Incorporated and Florencio Orendain. Orendain moved to dismiss on the ground that the Regional Trial Court had no jurisdiction, that the complaint was barred by the finality of an earlier SEC order, and that BF Homes had no personality to sue. The trial court denied the motion to dismiss, and later denied Orendain's motion for reconsideration, directing him to file his answer.

Orendain then went to the Court of Appeals on a petition for certiorari and prohibition, seeking to annul the trial court's orders. The Court of Appeals dismissed the petition and affirmed the trial court in full, holding that the reconveyance suit fell within the exclusive jurisdiction of the Regional Trial Court, that res judicata did not apply, and that the SEC order relied upon was not a judgment on the merits. Orendain elevated the matter to the Supreme Court by petition for review on certiorari.

Facts

BF Homes was a domestic corporation engaged in developing and selling residential lots. To acquire and convert properties into subdivisions, it borrowed heavily, incurring liabilities of more than one billion five hundred million pesos as of July 1984, although its assets were worth more than two billion four hundred million pesos. Citing the predatory acts of the Central Bank and the demands of creditors, BF Homes filed a petition for rehabilitation and for declaration in a state of suspension of payments before the SEC.

The SEC created a Management Committee chaired by Florencio Orendain, and later appointed a rehabilitation receiver, FBO Management Networks, Incorporated, with Orendain as Chairman. In October 1993, while BF Homes was under receivership, a Deed of Absolute Sale was executed by BF Homes, represented by Orendain, in favor of the Franciscan Sisters, covering a parcel of land in Las Piñas for nineteen million five hundred thousand pesos.

In November 1994, the SEC hearing panel confirmed the receiver's Closing Report and appointed a new Committee of Receivers composed of the members of the BF Homes board, relieving Orendain of his duties. In January 1996, BF Homes sued for reconveyance, alleging that the Franciscan Sisters had transacted with Orendain in his individual capacity, that neither FBO Management nor Orendain had title to the property transferred, and that the selling price was grossly inadequate, amounting to fraud and conspiracy.

Issues

• Whether or not the Regional Trial Court, rather than the Securities and Exchange Commission, has jurisdiction over the action for reconveyance.
• Whether or not the complaint for reconveyance is barred by res judicata by reason of the SEC's Omnibus Order and its later Order.
• Whether or not the Committee of Receivers may institute the action against a former receiver without prior SEC approval.

Applicable Provisions

Section 5 of Presidential Decree Number 902-A, which was the law in force when the complaint was filed, provides:

Sec. 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations, partnerships and other forms of associations registered with it as expressly granted under existing laws and decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving: b) controversies arising out of intra-corporate or partnership relations, between and among stockholders, members, or associates; between any and/or all of them and the corporation, partnership, or association of which they are stockholders, members or associates, respectively; and between such corporation, partnership or association and the state insofar as it concerns their individual franchise or right to exist as such entity.

This provision defines the limited jurisdiction of the SEC, and the Court uses it to show that a purely civil reconveyance suit falls outside that grant.

Paragraph (2), Section 19 of Batas Pambansa Blg. 129 provides:

Jurisdiction in civil cases. - Regional Trial Courts shall exercise exclusive original jurisdiction (1) In all civil actions in which the subject of the litigation is incapable of pecuniary estimation; and (2) In all civil actions which involve the title to, or possession of, real property or any interest therein, where the assessed value of the property involved exceeds Twenty Thousand pesos (P20,000.00) or for civil actions in Metro Manila, where such value exceeds Fifty Thousand pesos (P50,000.00) x x x

This is the statutory basis for holding that the reconveyance suit, which involves title to real property, belongs to the Regional Trial Court.

Section 6 of Rule 59 of the Rules of Court provides:

Sec. 6. General powers of receiver. - Subject to the control of the court in which the action is pending, and to the restrictions of the preceding section, a receiver appointed by the court shall have the power to bring and defend, in such capacity, actions in his own name, and to take and hold possession of the property in controversy, and to collect and receive the rents, issues, profits, and income thereof, and to do such acts respecting the property as the court may authorize.

This provision supplies the receiver's power to sue, which the Court applies to the Committee of Receivers.

Ruling

On the first issue, the Court held that jurisdiction is conferred by law and is determined by the allegations of the complaint, not by the defenses in a motion to dismiss. The Franciscan Sisters were neither an officer nor a stockholder of BF Homes, and Orendain was sued in his individual capacity for an unauthorized sale. The controversy was purely civil in character, requiring application of the Civil Code on obligations, contracts, and agency. The Court quoted its own ruling:

The first element requires that the controversy must arise out of intra-corporate or partnership relations between any or all of the parties and the corporation, partnership or association of which they are stockholders, members or associates; between any or all of them and the corporation, partnership or association of which they are stockholders, members or associates, respectively; and between such corporation, partnership or association and the State insofar as it concerns their individual franchises. The second element requires that the dispute among the parties be intrinsically connected with the regulation of the corporation. If the nature of the controversy involves matters that are purely civil in character, necessarily, the case does not involve an intra-corporate controversy.

On the second issue, the Court held that res judicata did not apply. The SEC order did not resolve the motion for intervention on the merits; it merely acknowledged the Closing Report for inclusion in the records without passing on its veracity. There was no identity of parties, subject matter, and causes of action, and reconveyance was neither an issue nor a relief sought in the SEC proceedings. Hence neither bar by prior judgment nor conclusiveness of judgment obtained.

On the third issue, the Court held that the Committee of Receivers could sue without prior SEC approval, since the general powers of a receiver include the power to bring and defend suits. The requirement of leave of court under Rule 59, Section 6 refers to the current receiver, not to a previous receiver like Orendain. The Court also noted that the petition had been rendered moot by the Securities Regulation Code, which transferred jurisdiction over intra-corporate controversies to the Regional Trial Courts.

Doctrine

Jurisdiction over the subject matter is conferred by law and is determined by the allegations of the complaint, irrespective of the defenses set up in the answer or motion to dismiss. A controversy is intra-corporate only when it arises out of intra-corporate or partnership relations and is intrinsically connected with the regulation of the corporation; if it is purely civil in character, it falls outside the SEC's limited jurisdiction under Section 5 of Presidential Decree Number 902-A and belongs to the Regional Trial Court under Section 19 of Batas Pambansa Blg. 129. Res judicata requires a final judgment on the merits rendered by a court with jurisdiction, and identity of parties, subject matter, and causes of action; an order that merely notes a report without adjudicating rights is not a judgment on the merits. A receiver may bring and defend suits in his own name under Rule 59, Section 6, and the leave-of-court requirement applies to the current receiver, not a former one.

Disposition

The Supreme Court denied the petition and affirmed the Court of Appeals, holding that the Regional Trial Court has jurisdiction over the reconveyance suit; BF Homes prevailed.

Remember This

Memorize this line: jurisdiction is determined by the allegations of the complaint, and a purely civil reconveyance suit belongs to the Regional Trial Court, not the SEC. Examiners use this case to test the intra-corporate controversy doctrine, the requisites of res judicata, and the powers of a receiver under Rule 59.